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Perfect Cross-Hedging Opportunities Via Formula Pricing: The Case Of The Broiler Industry

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  • Carter, Joy
  • Maynard, Leigh J.
  • Dillon, Carl R.

Abstract

One supplier of broilers without giblets (WOGs) offers customers a choice between paying Urner Barry's WOG quote or a formula price based on futures prices. From a buyer's perspective, the formula price is second-degree stochastic dominant, thus acting a marketing inducement. The formula price allows the seller to set almost perfect cross-hedges of WOGs with corn and soymeal. Stochastic dominance results suggested that the seller's dominant strategy would shift from the unhedged Urner Barry quote to the unhedged formula price as risk aversion increased. The hedged formula price was prominent in optimal portfolios of pricing strategies.

Suggested Citation

  • Carter, Joy & Maynard, Leigh J. & Dillon, Carl R., 2000. "Perfect Cross-Hedging Opportunities Via Formula Pricing: The Case Of The Broiler Industry," 2000 Annual meeting, July 30-August 2, Tampa, FL 21765, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea00:21765
    DOI: 10.22004/ag.econ.21765
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    References listed on IDEAS

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